Eksons is bullish on the timber industry after the recent Japan earthquake. Although it currently does not export plywood to Japan, it is likely to do so in the not-too-distant future given the tight supply situation, especially with reconstruction works in the offing in Japan. We are raising our FY3/12-13 EPS and DPS by 20-24% for higher plywood prices. We are also switching our valuation basis from an asset-based 3-year average P/BV of 0.6x to an earnings-based CY12 P/E of 7.2x, which is a 40% discount to our 12x target P/E for the timber sector. The large discount reflects its small market cap and lack of timber concessions. Our target price rises from RM1.32 to RM1.87, reinforcing our OUTPERFORM call. Potential share price triggers include the strong plywood price recovery and a further sales pick-up for its property project.
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